The Department for Business, Innovation and Skills (BIS) is to close its largest office outside London, prompting accusations that the chancellor’s “northern powerhouse” project was empty rhetoric.

Plans to close the BIS office in Sheffield by 2018 were announced on Thursday by the department’s permanent secretary, Martin Donnelly, who told the centre’s 240 staff that all those faced with job losses would be provided with “comprehensive support”.

The closure is part of a programme to reduce the department’s operating costs and staff size by 2020. “Our operating model needs to be designed in a way that works for this smaller workforce with more streamlined structures,” said Donnelly.

“The decision to close Sheffield by 2018 has not been taken lightly. The unions are being consulted and will be involved throughout the process. It is my top priority that all our staff are fully briefed and consulted on the process. We will provide comprehensive support to all those facing a potential change or loss of job.”

Staff were told that the department was to create a combined central HQ and policy centre in London, so that government ministers could access policy expertise more easily, and that the Sheffield office would not be viable once all policy roles had moved to the capital.

Commenting on the announcement, the Labour MP for Sheffield Central, Paul Blomfield, said: “The north needs jobs and London’s overheating. This move makes no sense and it exposes Osborne’s empty rhetoric of the northern powerhouse once again. I’ve pressed ministers to move public sector jobs out of London, as Labour did, and I’ll be challenging this decision at every opportunity.”

George Osborne’s northern powerhouse project aims to boost economic growth in the north of England – particularly in Liverpool, Manchester, Leeds, Sheffield and Newcastle – and rebalance the UK economy away from London and the south-east, partly by devolving political power to northern regions.

The civil service has, however, become increasingly centralised since Osborne first became chancellor in 2010. According to the Institute for Government, the proportion of civil service jobs based in London has increased from 16% in 2010 to 18% in March 2015, when there were 80,000 civil servants in the capital.

The department will establish around six business centres across the country, each one focusing on a key business activity. “Even with the movement of policy roles to London, our overall London footprint will decrease by 2020,” staff were reassured in an internal document. “We have, and will continue to have, many more people based outside London than inside London.”

Harry Harpham, the Labour MP for Sheffield Brightside, said his heart went out to all those facing redundancy. “Of course this comes hard on the heels of Sheffield Forgemasters’ decision to cut 100 jobs, and the announcement back in November that the HMRC tax office in the city will close with 500 jobs to go,” he said.

“It’s no wonder people are questioning whether George Osborne’s so-called northern powerhouse really means anything. We’ve had the flash press statements and photo ops, but when actual jobs are on the line we see that the government’s rhetoric is just hot air.

“If they want to get serious about the northern economy they should stop moving civil service jobs to London, and start providing proper support instead of empty promises.”

The civil service trade union, Prospect, condemned the decision to close the Sheffield office, saying the plans had only been revealed to them 30 minutes before being announced to staff.

Prospect negotiator Julie Flanagan said: “We hear lots of rhetoric about the importance of the regional growth agenda and the need to develop a northern powerhouse. Today’s announcement – and others like it – makes a mockery of the government’s stated policy. Greater centralisation of power in London will create an even bigger gulf with the regions.”

Flanagan said the decision was purely about cutting staff numbers and not boosting business. “No relocation expenses have been offered to staff in Sheffield, so most of them face the very real threat of redundancy,” she said. “However, given the state of pay in the civil service it will be no easy task recruiting to new roles in one of the world’s most expensive cities.”

• This article was corrected on 28th January. It originally referred incorrectly to the Sheffield office as the only non-London BIS office.